How our business is broken
Inspired by the last article, I wanted to talk about the issues Acomorate is currently facing. It exemplifies some of the challenges associated with finding product-market fit — what extent a product satisfies its market.
We add value to students by providing readily available information that you can’t get otherwise — but there’s two prominent issues on how this will create a sustainable business. One, how will we get reviews? Two, how do we make money?
Why would someone write a review?
A review of a house, the lifeblood of our business and USP (unique selling point), is reliant on a tenant spending 5 minutes to write one on our site. That leads to the issue, why would someone write a review?
From the perspective of someone who’s learning as I go, answering that question is a challenge. We’ve theorised tonnes of different ways to incentivise a review, from the gamification of parts of the website, similar to Facebook’s origin (google Facemash), to paying for a review like how Circle gained some traction.
As a critique of the latter method, while it definitely creates virality (I distinctly remember being at the pub with my friends, with us all creating Circle accounts to get that £5 each), I believe it has the issue of users never using the service after the initial incentive— I haven’t opened the Circle app since.
Furthermore it has a relatively high acquisition cost; meaning that same customer has to have a lifetime value to overcome that initial cost if you want to be sustainable.
Lifetime Value: The amount of money a customer pumps back into the company.
An example: You spend £10 acquiring a new customer who then spends £30 on your products, let’s say with a profit of £16 on that, congratulations! You’ve made £6.
This probably works for companies who get a reasonable lifetime value from customers and have enough wealth to take that one time hit (let’s be real Circle has some smarter people working in their marketing department, so I’m sure it worked great for them). However in the context of Acomorate, we theorised our acquisition cost would be £7.50 per person if we wanted to go viral; when your current revenue is precisely £0 that isn’t feasible, I’m already far too deep in my overdraft.
This highlights the other issue, how the hell are we making any money?
Is a Business Model really Necessary? Unfortunately yes.
We knew from the beginning that we weren’t going to charge students for our service, no one is going to pay for it and we don’t want to, it fundamentally counteracts our ideal of informing students.
So, how do we survive when we don’t charge anything, and as of writing we are spending about £30 a month to keep the website running?
Our market is two sided, we have students who write reviews and look for houses, and then we have landlords who can respond to reviews and manage their properties’ information. All of this functionality is free.
While students are incredibly unlikely to pay for a service we provide, letting agents are customers we can add value to. They have a host of their own issues that we can innovate upon, and their specific circumstances vary as you scale from a small family run business to a national company.
So You’re Helping us get Ripped of More
As a student it’s quite easy to demonise your letting agent, you know that you’re probably being overcharged, and when the fifth email about all the broken parts in your house gets ignored it’s hard not to wonder, how is this allowed to happen?
With the high demand for housing compared to scarce supply and the panic that occurs every November, it seems like a letting agent can get away with anything and all their houses will still sell. The idea of this power discrepancy isn’t particularly far fetched, as the former NUS welfare Vice-President said:
“Overseas investors make billions of pounds building luxury apartments and charging sky-high rents for students. There is a cost of living crisis and finding good-quality affordable accommodation is a huge barrier for low- and middle-income students attending our world-leading institutions”
This practice is unfortunately increasing, but in actuality most letting agents are a far cry away from the moustache twirling villains that rinse us for all we’re worth. Understanding and empathising with the issues they undergo has been incredibly informative, and giving a level of objectivity to my previously (somewhat) biased perspective. I can’t even begin to imagine how accommodation in London works however, it’s a league of its own.
So What’s our Plan?
The article that delved into each theoretical avenue of revenue made this far too long a read, so I’ve split it into its own piece.
With regards to accumulating reviews there’s a lot of free things we’ve done, like handing out flyers and knocking on doors pen and paper at the ready. These aren’t scaleable, but you don’t need to scale when you’re based almost solely in Leamington Spa — as a friend told me:
“The beginning of your startup is when you should do everything that doesn’t scale”
We’ll see if we do any lecture shout-outs.
Thanks for reading
